Middle East stocks get hammered on oil price fears

Stocks in the Middle East suffered some of their worst losses for years Sunday in a reaction to a further drop in oil prices.

Dubai's main stock index led declines with a 7.6 percent tumble, the biggest in over six years, as investors dumped equities across the board. Locals and foreign investors from outside the Arab world were net buyers despite the prevailing negative sentiment.

Duncan Chard | Bloomberg | Getty Images

Watching financial data on screens inside the Dubai Financial Market.

The latest slide erased almost all gains for what until recently has been a remarkable year for the Dubai Financial Market (DFM). As late as September the benchmark was among the world's best performing equity markets.

Since the fateful November 27 meeting of the Organization of Petroleum Exporting Countries, when it decided to maintain its oil production levels, the index has lost more than a quarter of its value.

As of Monday morning, stocks staged a rebound tracking sentiment in oil markets, and traded some 4 percent higher halfway through the session.

In neighboring Abu Dhabi, authorities moved quickly to soften the blow after the stock exchange closed down 3.6 percent on Sunday. The emirate's securities exchange (ADX) approved temporary suspensions for stocks if they fell by 5 percent. The statement added the five-minute suspensions would give investors a chance to review trades.

The regional jitters on the implications of sustained lower crude prices were echoed by Kuwait's Finance Minister, Anas Al-Saleh, who told CNBC Arabia that it should be seen "as an opportunity to achieve necessary economic reforms".

"At current oil prices, all the Gulf economies are likely to post budget deficits and the region's current account surplus will be wiped out next year," Capital Economics said in a note late last week. "However, large FX reserves mean that, over the next few years at least, policy won't need to be tightened aggressively. Accordingly, while we expect growth to soften in 2015- 16, we don't think it will collapse".

Qatari stocks witnessed significant selling pressure as well, dropping 5.9 percent. However, the government reiterated its economic outlook on Sunday, with a predicted growth rate of 7.7 percent in 2015, a marked acceleration from the 6.3 percent forecast for this year.

"Solid expansion in non-hydrocarbon activities will continue to drive overall economic momentum, propelled by investment spending, an expansionary fiscal stance and population growth," the Ministry of Development Planning and Statistics said in its report.

The pessimism at the beginning of trading week spilled across to oil importers such as Egypt, where stocks fell 5.2 percent. The oil-rich Gulf has been providing crucial financial support to the Arab world's most populous country, and the latest upset in crude prices has raised questions about the longer terms sustainability of aid pledges.